Atul Maheswari: Shelly, I know that industry is challenged, but really if we look at your performance versus your larger competitor, there has been a pretty material gap that has now existed for the last several quarters. So, earlier the thought was maybe this was because of the supply chain issues and the chip shortage that you had last year, maybe early this year, but that’s in the rearview mirror as well. So, even as of now, why do you think this underperformance exists, and what do you think you need to do to address this performance gap?
Shelly Ibach: Hi, Atul. I think the backdrop starts with the industry. Well, it starts with the consumer and the macro environment, and then how that has impacted the bedding industry. The bedding industry has been at recessionary levels now for two years. And it’s forecasted to have been down double digits in the third quarter and that’s where our performance was as well. We completely expect to compete more effectively than we did in the third quarter. I highlighted the area that we see ourselves where we missed. And that was on the price value, the price value for the consumer. The consumer changed in August and our messaging was not on point with where the consumer changed, nor was our selling process or online experience.
Those are the adjustments we made in the third quarter and we’ve seen progressive improvement since we implemented those adjustments. In October, we delivered mid-single-digit decline, which is where we expect our fourth quarter performance with our revised guidance. We’re going to continue to drive our media strategies and build on them. We’ve renegotiated and have greater impressions as we move into the fourth quarter. And those impressions are complemented with drive to store actions, and we expect to add media as we see greater traction. But for now, we’re holding our media below prior year.
Atul Maheswari: That’s helpful, Shelly. I have a couple of follow-ups unrelated. First, on the revised covenants, does that add incremental interest expense? If so, are you able to quantify how much incremental interest it would add for next year?
Francis Lee: It will move us up on our rates — rate ladder slightly. I can get you the specifics.
Dave Schwantes: Yes. I think, Atul, just to add to that. So, we did provide — Francis did provide in his commentary specifics around this year’s number, which is $42 million for interest expense, which includes, if you do the math from where we are year-to-date, it would signal $12 million for Q4. That $12 million number does include the updated rate structure where our leverage is at the end of Q3, which is the peg point for interest rates in Q4. And there was some write-off of historical credit line fees that we had on the balance that have been written off as we amended the agreement. So, that all rolls into the $12 million number. We’re not providing guidance relative to next year on this call. What I would say is that higher interest rate environment is going to carry into next year.
I would expect interest expense next year to be north of this year’s number, which is the $42 million. And I think I would just say we’ll give you more clarity on the February call, but for now if you’re doing your model, it’s definitely going to be north of $42 million. And that’s a big number. It’s a big weight on the P&L. And our goal is obviously to quickly pay down that debt as quickly as possible to start lowering the interest expense number and start getting our leverage to a level where we’d like it to be.
Atul Maheswari: As my last question, if I may, and somewhat related is, there was, I think Francis and Shelly, both of you mentioned, the expectation to generate positive free cash flow next year. The question is, if the macro does remain challenged and you have the incremental drag from the store closures, the 1 to 2 points. So, at what level of sales decline would it become very hard to generate positive free cash flow, just so that we get confidence on the downside case scenario on free cash flow? Thank you.
